Posts Tagged ‘cohabitation’

Here’s my question, and I apologize if it’s long. My boyfriend and I have recently made the decision to move in together and this, of course, requires a certain amount of financial meshing. I was wondering if you have any advice or any readers’ stories about how couples have managed this kind of quasi-joint situation. We have a shared household budget, but the rest of what I make is mine and the rest of what he makes is his. On one hand, we want to plan for the financial future together, but on the other hand, we’ve not reached the point where we are ready to share all our money. We have no plans yet to get engaged or married, although that is the hope for many years down the road. How do we plan for a future together, work towards joint goals, and maintain a trusting relationship while we’re in this I-love-you-but-I’m-not-ready-to-give-you-access-to-all-my-money period?

If there’s anything we do know about finances, we do know the difficulties of the cohabitation without commitment. In fact, we ourselves lived in sin for a whole year before we were engaged. For what I’m going to write, I’m going to assume that engagement time may be a little more in the future than you’d like. Here’s how we made it work without jeopardizing our individual futures if the relationship turned sour.

2. KEEP ACCOUNTS SEPARATE. By the looks of it, you’re already doing that. For the joint household account, in the interest of fairness, I’d suggest that you each put in an amount of the household stuff that is proportional to your salary. For Her and I, it was easy since we made exactly the same salary when we first moved in together. Also, keep a firm list of what is “household” – and only allocate money to that account for items on that list. Keep your own money your own money.

This also goes for savings accounts. You should each have one in your name. See #1. If things go sour, you’ll need to have some money saved to get your ass out in one financially okay piece. Agree to save a proportional amount of savings, with the intention that in the future that will all become both of your monies.

Anyway, how is he going to save for an expensive nice engagement ring without you knowing?

3. START SMALL. You’re timid about sharing your financial life together, and you have everything separate. But you have to start somewhere, right? For that, I’d recommend that you take baby steps. Open up a joint savings account. Agree to a smallish amount that you’d like to save together – for example maybe $50 a month from each of you. As time goes on and your comfort level increases, increase the amount. You can also agree to dump some of your personal savings into that joint account. Just make sure that there is a consistent method to allocating these funds.

4. DEVELOP A PLAN. You want to plan a future together? Work towards mutual goals? That’s great! Now you need a plan. A great book that will help you get started is Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner. Write down your values. Write down your goals. Prioritize them and spend and save accordingly. Check out our value based plan for a start.

I hope that what I’ve written helps with your fledgling cohabitation. It may not have the feminine touch that Her graces her posts with, but I think it’s good enough, right? (Remember, we are not responsible for the actions that you take as a result of anything said on this blog. Please don’t sue if it doesn’t work out.)

We shacked up a year ago, but not before I read Shacking Up: The Smart Girl’s Guide to Living in Sin Without Getting Burned, by Stacy and Wynne Whitman. I have to give it four stars for tackling complicated legal, financial and emotional issues and still being fun to read. It’s written for women, but it works just as well for men. I made Him read it, although he refused to do so in public. Shacking Up devotes an entire chapter to Money Matters, outlining the basic financial steps cohabitants should undertake before moving in together. Here’s a summary of what the book recommends, and what we did in real life.

1. Discuss the meaning of Money. Talk about whether you are a spender or a saver and how you feel about money. What are your financial goals and fears? How are you alike and how are you different? What could be a potential source of conflict for you as a couple? We also talked about our values, and created a value-based financial plan for ourselves. 2. Lay Your Dinero on the Table. Get a clear, complete picture of your own financial situation, then share and compare. It’s essential to be honest about debt here. Order credit reports together to make sure you haven’t missed anything. You don’t need to disclose any long-term assets that won’t affect your ability to pay the household bills, such as an inheritance from grandma. (You will need to share this information when you commit to marriage, however.) This was the hardest part for us. Her cried over huge amounts of debt, Him disclosed some ugly interest rates, and in the end we were better for it, I promise.

4. Create Budgets. They don’t recommend combining all your money, so instead of one budget you’ll have to make three: His, Hers and Theirs. This helps clarify what you’ve agreed on in step 3 and ensures you’ll never be overdrawn. We created an initial budget to determine how much we could afford to pay for housing etc, but do not maintain a regular monthly budget.

5. Put Everything In Writing. This makes it official and protects you if things don’t work out. Plus, experts say that people who write down their goals more often achieve them. This works for money goals too. We created cohabitation agreements, which we (thankfully) have never had to use.

Shacking Up is clear that they don’t recommend combining all your money, for a variety of reasons. They grudgingly suggest a joint account for joint living expenses only, with both parties retaining a personal account for all other expenses. They also warn against opening any joint credit cards.

The only fault I can find with this book is that Shacking up recommends that just one person be the designated financial manager, a move we completely disagree with. We think it’s much better when both people are co-managers of the money and make all decisions and bill payments together. We do this regularly, in our State of The Union addresses. We also pay the bills together every weekend.

The chapter ends with some good long-term financial planning tips for couples, such as plan for the future, set goals, be honest, build a cash reserve, pay off debt aggressively, save for the future (separately!), trim fat from the budget, and keep the dialogue open. Nothing new here, but solid information for everyone. If you’re considering shacking up, read Shacking Up first.

If you’re going to be shacking up and aren’t married, cohabitation agreements can provide a degree of legal protection and reassurance. They aren’t romantic, but we made two cohabitation agreements when we moved in together. The wording for these came from a fantastic guidebook called Shacking Up. The first one is an “Agreement Not To Have A Common Law Marriage.” We typed it up, signed it, dated it, and stuffed it in a filing cabinet. It says,

[Him] and [Her], by signing below, jointly agree that their living together is not intended to, and does not constitute, a common law marriage in any state or territory of the United States. Signed, [Him] and [Her]

We wrote our second agreement when we made our first real purchase together. We had purchased a living room set with money from our joint account, and wanted to be sure how it would be handled in the event of a break-up. So we wrote a Purchase Agreement. It says,

[Him] and [Her] on March 6, 2005, to purchase a 3-piece cocktail and end table set together. The price of the set was $509. [Him] and [Her] contributed equally to the purchase price. [Him] and [Her] will each own 50% of the table set. If either [Him] or [Her] dies while they are living together, the survivor shall own the table set absolutely. If either [Him] or [Her] makes a will or other estate plan, this provision shall be reflected in that document. If the relationship dissolves, [Her] shall have the first right to buy [Him's] 50% interest in the table set. The value of the table at this time will be its fair market value. If [Him] and [Her] cannot agree on a purchase price, they will advertise the table set to the public, sell it to the highest bidder, and divide the money equally. If any disputes arise out of this agreement, [Him] and [Her] agree to consult with and abide by the decision of a neutral third-party mediator or arbitrator. The flip of a coin will determine who will select the arbitrator or mediator. Signed, [Him] and [Her]

Since then we have not written another purchase agreement, although we have made several large joint purchases. Now that we’re engaged, we have a greater feeling of stability in our relationship and don’t predict we’ll need an arbitrator to distribute the end tables! The purchase agreement seems silly now, but at the time it gave us the confidence to make a big purchase together. I still feel good about the Marriage Agreement, since we’ll have been living together for over 3 years when we finally marry. It’s nice to know that there’s a real distinction between our cohabitation and our marriage.

I highly recommend cohabitation agreements to anyone who is thinking of shacking up. It adds a level of legitimacy to a situation that is often ignored in the law. Plus, it forces you to talk about these issues early on. The agreements are quick to type up but can make a big difference in how you feel about your joint finances.

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